2021-06-30 10:30:16

Ethereum Forecast to Reach $2 Trillion in Market Cap, VanEck Explains

  • Matthew Sigel is the head of digital assets research for the $71.2 billion money manager VanEck.
  • Sigel breaks down how ethereum can reach $2 trillion in market cap in a blue-sky scenario. 
  • He also shares what he thinks could be next for crypto after decentralized finance and NFTs.

One day in 2016, Matthew Sigel, then a portfolio strategist at CLSA, wrote his most clicked-on investment research note of the year titled “Google is evil.”

The note exposed how much power Web 2.0 companies such as Google have amassed as well as how wide and deep their moats seemed to be even though they were contributing to the decline of the journalism industry — an industry that Sigel grew up in as a financial journalist for CNBC, Bloomberg, and NHK.

“The conclusion of that piece was to buy Google,” Sigel said in an interview. “So I started to be on the lookout for technologies that had the potential to disintermediate not only big tech but other kinds of centralized institutions.”

Sigel learned how to identify disruptive technologies at AllianceBernstein where he worked on thematic portfolios managed by then chief investment officer Cathie Wood. Now, he was hunting for what could disrupt that. 

Sigel and Wood, who left AllianceBernstein separately to join CLSA and to build Ark Invest, came to the same conclusion — bitcoin

“Bitcoin is such a technology in the sense that anyone can join the network anywhere in the world. All they need is an internet connection,” Sigel said, adding that he started incorporating more and more crypto content into his widely followed “Hello Investors” CLSA newsletter since the viral Google note. 

His growing enthusiasm for crypto research culminated in him joining VanEck — a money manager with $71.2 billion in assets — as head of digital assets research in April this year.

Ethereum’s path to $2 trillion in market cap 

Since Sigel dived into digital assets research at VanEck, cryptocurrencies have undergone bouts of volatility that halved the prices of bitcoin and ether from their respective peaks of $64,000 and $4,000.

But he has a strong conviction that the two largest cryptocurrencies will fetch far higher market caps than where they are trading at now.

Veteran crypto investors are used to, even if they don’t welcome, this type of volatility,” he said. “The introduction of traditional financial players writing derivatives on some digital assets and just wider participation globally are pointing to this asset class maturing into something that is eventually less volatile.”

Specifically, Sigel thinks that bitcoin has the potential to achieve the same market cap as gold, which currently stands at around $11.3 trillion. In a “blue-sky scenario,” ethereum could reach a market cap of $2 trillion, he added. 

“The current valuation of ethereum looks quite cheap. It trades cheaper than many Web 2.0 software companies on a price-to-sales valuation,” he explained. “But it’s a very volatile asset and the earnings model can move a lot based on the input of the ethereum price itself, so it’s got this autocorrelation function that kind of all networks do, which is just that it’s fantastic on the way up and pretty scary on the way down.”

Aside from important network updates that are looming on the horizon, ethereum, which powers decentralized finance applications and non-fungible tokens, has the potential to capture some if not most of the revenues from global retail and investment banking, payments, asset management, and trading industries, Sigel mapped out in a May 25 research note

“Assuming Ethereum captured 2/3 of this value and holding the ETH market cap/revenue ratio steady at its current 19x ‘sales’ would yield an ETH enterprise value between $1.8 – 2.3T vs. its current $290B market cap,” he wrote. 

What’s next for crypto after DeFi and NFTs

As a former financial journalist, Sigel is well aware of the fact that narratives often drive adoption, which happens to be a crucial factor in the growth and maturation of crypto.

By now, the vision for bitcoin has evolved from a faster, cheaper, and more secure payment solution to a store of value and inflation hedge; the rise of ethereum-powered decentralized finance, which seeks to disrupt Wall Street, is still in the very early stages of development; and the boom and bust of non-fungible tokens have allowed consumers outside of finance to interact with blockchain and cryptocurrencies. 

But what’s the next narrative and use case that can propel crypto forward and help it reach a wider audience? Sigel said it’s going to be those decentralized innovations that can either disrupt or improve the existing services offered by big tech companies. 

“Much of crypto is about making financial services more efficient by bringing costs down,” he said. “But in order for crypto to reach 7 billion people, we are going to want to see some consumer-facing Web 3.0 type of business models that either mimic or improve on existing platforms like Airbnb, Spotify, Google, or any of those big guys in a way that goes viral.”

Current examples of such businesses include “crypto Twitter” BitClout (CLOUT) and Brave Browser, a privacy browser that rewards users for their attention with its native token — Basic Attention Token (BAT).

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